SI Financial Buying Newport Bancorp

It's been a little over a month since Newport Bancorp issued its Q4 2012 earnings report, showing that the company grew profits ($0.14 per share), but lost assets (which shrank by 1%). Now, it appears that this is the last report the tiny bank holding company will ever make.

On Tuesday, rival banker SI Financial Group , the holding company for Savings Institute Bank and Trust Company, announced that it has agreed to buy Newport for $17.55 per share, payable either in cash, or in the form of 1.5129 shares of SI stock per share of Newport acquired, as the shareholder prefers. As is usual in such cash-and-stock deals, SI has set limits on the amount of either cash or stock it will be required to produce, such that if more than 50% of shareholders choose to be cashed out either in cash or in stock, then payment will be pro rata. (This means that Newport shareholders will have to accept a mix of cash and stock as their purchase price.) The total implied value of SI's takeover bid is therefore roughly $61.3 million.

By acquiring Newport, SI will add $449.4 million in assets, $355.0 million in loans, and $289.7 million in deposits. It will also gain entry into the banking markets of Newport and Washington Counties in Rhode Island, where Newport has five full-service branches, and will add Newport's single branch in Stonington, Connecticut.

SI says it expects the acquisition to be "immediately accretive to its earnings per share, excluding one-time transaction expenses." Yet, even so, because the deal was announced after hours, it's hard to say how investors will react to the news. Given that SI says it is paying "116% of Newport Bancorp's tangible book value" to acquire the company, and given that SI's own price-to-TBV is only 0.9, a negative shareholder reaction seems likely. Conversely, Newport shareholders will probably be pleased. At $17.55 per share, they're being offered an immediate 11% premium to Newport's Tuesday closing share price.